nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒09‒17
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Private information, price discrimination, and collusion By Peiseler, Florian; Rasch, Alexander; Shekhar, Shiva
  2. Pricing behavior in partial cartels By Odenkirchen, Johannes
  3. Drip pricing and its regulation: Experimental evidence By Rasch, Alexander; Thöne, Miriam; Wenzel, Tobias
  4. Learning from failure across products By Glauber, Johanna; Kretschmer, Tobias
  5. Competition and Regulation with Smart Grids By Marina Bertolini; Marco Buso; Luciano Greco
  6. Market Expanding or Market Stealing? Platform Competition in Bike-Sharing By Guangyu Cao; Ginger Zhe Jin; Li-An Zhou

  1. By: Peiseler, Florian; Rasch, Alexander; Shekhar, Shiva
    Abstract: We analyze firms' ability to sustain collusion in a setting in which horizontally differentiated firms can price-discriminate based on private information regarding consumers' preferences. In particular, firms receive private signals which can be noisy (e.g., big data predictions). We find that there is a non-monotone relationship between signal quality and sustainability of collusion. Starting from a low level, an increase in signal precision first facilitates collusion. However, there is a turning point from which on any further increase renders collusion less sustainable. Our analysis provides important insights for competition policy. In particular, a ban on price discrimination can help to prevent collusive behavior as long as signals are sufficiently noisy.
    Keywords: Big Data,Collusion,Loyalty,Private Information,Third-Degree Price Discrimination
    JEL: L13 D43 L41
    Date: 2018
  2. By: Odenkirchen, Johannes
    Abstract: We analyze the pricing behavior of firms when explicit partial cartels have formed in experimental markets through communication. Using a repeated, asymmetric capacity constraint price game, we show that, in line with theory, a partial cartel is sufficient to increase market prices for all firms. Moreover, we find that prices of cartel insiders and outsiders are not necessarily on the same level what contradicts common theoretical predictions. This is because communication allows cartel members to overcome a potential coordination problem and enables an equilibrium in (joint) mixed strategies to emerge. The results therefore underline the importance of communication in explicit cartels and the resulting market outcomes.
    Keywords: partial cartels,explicit collusion,umbrella effects,experiments
    JEL: C92 D03 L13 L41
    Date: 2018
  3. By: Rasch, Alexander; Thöne, Miriam; Wenzel, Tobias
    Abstract: We experimentally examine the effects of drip pricing on seller strategies and buyer behavior as well as the implications for regulation. Sellers set two prices: a base price and a drip price. At first, buyers only observe the base prices and make a tentative purchase decision. Revealing the sellers' drip prices, however, comes at a cost. We find that sellers only compete in base prices and set the highest possible drip price. This makes the base price a reliable indicator for the lowest total price, and few consumers invest in drip-price search. A comparison with Bertrand competition reveals significant effects: With drip pricing, consumer surplus is lower, and seller profits are higher. When there is uncertainty over possible drip sizes, sellers also compete over drips, and consumers more frequently fail to identify the cheapest offer. Bertrand competition also leads to higher consumer surplus and lower firm profits in this case. Hence, our results point to positive effects of drip-price regulation.
    Keywords: Drip pricing,Search,Regulation
    JEL: L13 M3 C9
    Date: 2018
  4. By: Glauber, Johanna; Kretschmer, Tobias
    Abstract: Learning rates for the same or similar products differ significantly across firms. One reason for this heterogeneity may be that most firms are multiproduct firms and that they learn both within and across the products they produce and sell. Moreover, the organization of production and the technological design of (families of) products may affect the extent of learning across products. We study learning from failures within and across products in the US automotive industry, using safety recalls as a particularly costly form of product failure. We find that firms indeed learn from failure across products, but learning is faster if products use a common technological platform or are produced in a common plant. Severe product failures involving a supplier also lead to increased across-product learning. Our results shed light on the characteristics of firms' learning from failure across products and extend the existing literature, which typically studies learning at the firm or the product level and thus misses out on an important channel for learning in manufacturing contexts.
    Keywords: Automotive Industry; Learning from Failure; Multiproduct Firms; Organizational Learning; Product Recalls
    JEL: L11 L23 L62 M11
    Date: 2018–08
  5. By: Marina Bertolini (University of Padova); Marco Buso (University of Padova); Luciano Greco (University of Padova)
    Abstract: In the last few decades, liberalization and energy transition have deeply reshaped crucial segments of the electric industry (e.g., power generation, energy trading and retail supply) in several countries around the world posing. The development of smart grids is considered a solution to face the new challenges that arise by such dynamics. Our critical analysis of interdisciplinary literature and governmental documents highlights that input-based or outputbased regulation is not implementable in the case of smart grids because of unclear deï¬ nition of smart performance. Thus, we introduce a new deï¬ nition of grid smartness that is based on the volatility of market energy prices and flows and we develop a simple industrial-organization model of the electric market to analyze the impact of smart grids on competition and to assess the incentives of distribution system operators to invest in smart grids. We ï¬ nd that smartgrid investments foster the aggregate supply of energy, though with controversial effects on suppliers’ proï¬ ts. We also ï¬ nd that the investments in smart grids implemented by the distribution system operators is suboptimal because they fail to internalize positive externalities on energy consumers and producers.
    Keywords: Electricity markets, investments, risk aversion, Distribution System Operator
    JEL: L13 L51 L94
    Date: 2018–09
  6. By: Guangyu Cao; Ginger Zhe Jin; Li-An Zhou
    Abstract: The recent rise of dockless bike-sharing is dominated by two platforms: one started first in 82 Chinese cities, 59 of which were subsequently entered by the second platform. Using these variations, we study how the entrant affects the incumbent’s market performance. To our surprise, the entry expands the market for the incumbent, not only boosting its total number of trips but also allowing the incumbent to achieve higher revenue per trip, improve bike utilization rate, and form a wider and more evenly distributed network. These market expansion effects dominate a significant market-stealing effect on the incumbent’s old users. Our findings suggest that platform entry can divert the perceived path to winners-take-all in a market with positive network effects, and competition with the outside goods is at least as important as the competition between platforms, especially when users multi-home across compatible networks.
    JEL: D22 L1 L4 L9 R4
    Date: 2018–08

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